Ideally, BI would raise interest rates by 25-50 bps so that the rupiah could be more stable and not deplete foreign exchange reserves for rupiah intervention. However, BI also wants to encourage banks to take advantage of the recovery, through increasing lending at affordable interest rates.
The Center of Economic and Law Studies or Celios considers that Bank Indonesia or BI is facing a dilemma in setting the benchmark interest rate , because there are efforts to encourage economic recovery but on the other hand the rupiah exchange rate is hampered.
Economist and Director of Celios Bhima Yudhistira explained that so far BI is still holding interest rates, despite the upward trend in inflation. BI itself gave a signal that interest rates will still be maintained.
"That's a dilemma, BI holds interest rates because domestic inflation is still stable [3.5 percent as of May 2022] and wants to encourage banks to take advantage of the recovery, through increasing lending at affordable rates. However, the consequences of holding interest rates have been impact on the stability of the rupiah exchange rate," said Bhima to Bisnis , Wednesday (22/6/2022).
This afternoon, Jisdor's rupiah was recorded at the level of Rp. 14,860 or weakened 0.38 percent from Tuesday (21/6/2022) at Rp. 14,804. The rupiah weakened in the current year and a number of parties feared its movement to penetrate the level of Rp. 15,000.
Bhima said that the weakening of the exchange rate would be related to the payment of foreign debt, so that it could result in imported inflation , especially in the food sector. According to him, this needs to be considered by BI in determining monetary policy and is a concern for the government as the holder of fiscal control.
"Ideally, BI raises interest rates by 25-50 bps so that the rupiah is more stable and does not deplete foreign exchange reserves for rupiah intervention," said Bhima.
Previously, BI Governor Perry Warjiyo emphasized that he would not be in a hurry to raise the benchmark interest rate amid tightening global monetary policy. According to him, the domestic inflation rate is still under control with an estimate of around 4.2 percent this year.
“With inflation still low, we are not in a hurry to raise our benchmark interest rate. We will keep interest rates low at 3.5 percent until there is a fundamental increase in inflation," Perry said at the Indonesia Economic Prospects Launch, Wednesday (22/6/2022).
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